Forecast: BoE Stimulus Set for August– BoE minutes indicate changes in three weeks

Forecast: When Will Article 50 Be Activated?– Theresa May’s government hits ground running

Pound Euro Exchange Rate Slips from Best Levels on Friday

After a bullish Thursday, the Pound Euro exchange rate’s movement was mixed on Friday as the week’s European session drew to an end.

While GBP/EUR initially continued its attempts to advance, hovering just above the key level of 1.20, the exchange rate eventually slipped as investors began to sell the Pound from its weekly highs.

At the time of writing, GBP/EUR was trending in the region of 1.1960. Overall, the pair has gained over two cents since markets opened this week.

Sterling sentiment may have been slightly undermined by Friday morning’s construction output report, which showed that the construction sector had dropped -2.1% in May – the month before the EU Referendum.

Analysts have took this to mean that construction was struggling even before Brexit jitters began to really set in in June, and markets grew concerned with the state of UK construction as a result

(Previously updated 14:48 BST 15/07/2016)

The Pound Euro exchange rate extended its weekly rally on Thursday as the Bank of England (BoE) defied market expectations and left the key UK interest rate frozen at its low of 0.50%. As analysts had widely expected monetary stimulus, this surprise caused Sterling to soar.

Investors had been expecting borrowing costs to be cut to either 0.25% or 0.0% so the decision to leave them unchanged lent the Pound immediate support.

GBP/EUR has fluctuated widely this week, starting near a weekly low of 1.1721 before hitting a weekly high of 1.2034 on Wednesday morning. The pair plummeted to 1.1810 on Wednesday night as BoE anxiety set in, but by Thursday afternoon was trending near its highs in the region of 1.1965.

Bank of England (BoE) Shocks Markets by Sticking to the Status Quo

Despite global markets giving a 75% chance that the Bank of England (BoE) would cut the key UK interest rate in its Thursday meeting, the BoE instead decided to leave the rate at 0.50%.

The central bank also left other stimulus measures untouched despite expectations for an entire package of easing. Interestingly, the BoE shocked the world by doing what it’s done since 2009 – leaving monetary policy alone.

‘Members of the committee also recognised that business investment declined in the two quarters ahead of the vote and the jobs market had also shown signs of weakening, with most employers saying they planned to freeze hiring or cut jobs over the next 12 months.

But they said these factors could prove temporary and improve over the coming weeks as the fog of the recent Brexit vote turmoil began to clear.’

While the bank’s minutes report heavily indicated that the Monetary Policy Committee (MPC) would adjust policy in the upcoming August meeting instead, investors took Thursday’s meeting as an excuse to pile into the Pound and continue this week’s rally.

Meanwhile, Britain’s new Prime Minister Theresa May has continued to reshuffle the Government’s cabinet, making some heavy changes. This includes the appointment of ‘Leave’ figurehead Boris Johnson as the Foreign Secretary, a move that could shock EU leaders.

Euro (EUR) Limp, Caught in Sterling Cross-Flows

The Euro was easily pushed around during Thursday’s session as Wednesday’s ecostats did little to spur on movement for the shared currency amid Brexit-focused European markets.

Britain and the Pound took the spotlight once again on Thursday, as expected, when the Bank of England (BoE) chose to leave monetary policy as it was despite widespread expectations that new easing would be introduced.

While the Euro plummeted against the Pound as a result, it gained against many other major currencies on Thursday afternoon as it was pulled higher in Pound cross-flows.

According to Reuters, this decision may have had a direct, positive impact on the Eurozone;

‘BoE meetings have in recent years had little impact on the continent, especially as the Bank has held interest rates steady since 2009, but the uncertainty Brexit has layered on top of stuttering global growth could require another round of stimulus from major central banks elsewhere. …

Money markets now price around a 20 percent chance that the European Central Bank cuts rates by 10 basis points to minus 0.50 percent next week, having seen around a 30 percent chance before the BoE decision. A cut is fully priced in by year-end.’

Pound Euro Exchange Rate Forecast: Sterling Could Rally Until Weekend

After a bullish Monday, Tuesday, and now a bullish Thursday, the Pound looks to end this week’s session well above the week’s opening levels.

However, whether or not GBP/EUR will once again reach or surpass its weekly high of 1.2034 remains to be seen.

Regardless, the pair is trending close to its highest July levels but remains well below its pre-EU Referendum levels – which were around 10 cents higher than its current levels, in the region of 1.30.

Indeed, GBP/EUR is still stuck deep in lows not seen since 2013, and as the Bank of England’s (BoE) next policy decision meeting is already less than three weeks away the Pound is likely to remain highly pressured.

In other upcoming news, the European Central Bank (ECB) is due to hold its own July decision policy meeting next Thursday. Currently, markets do not expect that further easing measures will be introduced – rate cut bets even dropped after Thursday’s BoE news.

However, the meeting could serve some indication on how the Brexit has affected the Eurozone economy, and investors will likely hope to finally hear some more in depth thoughts on the matter from ECB President Mario Draghi.

The Pound is unlikely to continue rallying into next week, and will eventually see some kind of profit-taking selloff as Brexit anxiety rekindles itself. Ultimately, the Pound Euro exchange rate is likely to remain heavily pressured going forward, and is unlikely to soar much higher than 1.20.